Lease Vs Buy Vehicles: Which Is Better For Your Service Business?
- September 3, 2018
- By: Vonigo
This article about lease vs buy of vehicles for a service business is written by Irene Malatesta, a business content strategist with Fundbox. Irene is passionate about working with entrepreneurs and mission-driven businesses to bring their stories to life. Fundbox is dedicated to helping small businesses grow by democratizing access to credit.
Your Service Business Fleet
Many small businesses operate a fleet of vehicles. One or more cars, trucks, or other vehicles dedicated to business operations allows agility and the ability to serve a broader area of clients. Home cleaning and repair, glass services, lawn care, moving services, and landscaping are all businesses that commonly will have a fleet of vehicles.
Unfortunately, obtaining and maintaining these vehicles can be a serious drain on your business finances. Deciding when and how to expand the fleet is a major choice that shouldn’t be taken lightly.
Keep in mind that if you have any questions about your situation, it’s always a good idea to consult your trusted financial advisor. Every situation is different. That said, here are some things to consider when deciding between lease vs buy of a new vehicle for your fleet.
Lease vs Buy
Most business owners aim to buy their fleet rather than leasing it. Owning your fleet outright has one clear advantage over leasing. With a lease, you have to keep paying to use the vehicles, indefinitely.
However, if you don’t have the cash to buy your vehicle up-front, you’ll likely have to pay off a loan. Depending on your business’ credit and how quickly you pay the loan off, the interest on your auto loan can add up over time.
Leasing may make more sense. Especially if you only need the vehicle for a short length of time — say, during a busy summer. Sure, you can sell a vehicle you own later on, but as every car owner knows, once you drive the vehicle off the lot it loses value substantially.
Another thing to keep in mind is maintenance. If you buy your vehicle, you’ll also be responsible for any maintenance your vehicle needs. Business vehicles can accumulate serious wear-and-tear over time. The cost of upkeep can be enormous, possibly even requiring auto repair loans.
When you lease a vehicle, the vehicle’s actual owner often will pay for routine wear-and-tear maintenance — although it’s still a good idea to take it into the shop at intervals, to prevent more serious problems down the line.
The issue of leasing versus buying your vehicle will depend on your circumstances and future business plans, as well as the terms of your lease or loan. But things get dicier when taxes are involved.
Taxes and Your Fleet
For tax purposes, a business vehicle is one where at least half of its driving time is for business. This is important to remember because your personal vehicle may or may not count as a business vehicle for tax purposes, even if it has your business’ branding all over it!
When you lease a business vehicle, your payments are business expenses, so they’re tax deductible. If you buy the vehicle outright, the interest payments on your loan are what’s tax deductible. But you can also write off the depreciation of your car’s value.
Finally, your vehicle’s business mileage is always tax-deductible, whether you lease or buy. However, for a leased vehicle, mileage beyond a certain limit may incur extra fees, so be careful.
Your Fleet as an Asset
A fleet of vehicles is vital for many types of businesses. However, determining whether it’s best to lease or buy a new business vehicle is a difficult calculation. It requires considering many factors, including the tax benefits, the terms of a potential loan, the use the vehicle will see, the amount of money you can spend on maintenance, and so forth.
Carefully consider the options available to you, and consult with a trusted accountant or attorney where needed. You’ll be ready to make the best decision possible for your business.
Want to Learn About How to Grow Your Service Business?
Service business management software can help you expand your business by increasing your bookings, saving time and increasing profits. To learn more, book a free, private demo of Vonigo.
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